IR Monitor – 29th March 2021
Investor Relations News
This week we begin by looking at KPMG’s CEO Survey that found almost half of CEOs don’t expect a return to office-based work this year. We move on to explore the increased risk of fund greenwashing which may even be exacerbated by the implementation of new EU rules designed to tackle the same issue. We then discuss the latest measures encouraging US companies to begin disclosing employee turnover, from where we take a look at the buyback binge across America and the UK, followed by some insight into the fund that was instrumental in Danone’s recent leadership change. And finally, we consider how securities fraud expands beyond traditional insider trading.
This week’s news
Half of CEOs don’t expect a return to normal this year
KPMG’s recent CEO Outlook Pulse Survey found that 31% of CEOs expect to be returning to business as normal in 2021, while 45% think the return to the office will be postponed until next year. According to City AM the move back to the office will be what dictates many people’s return to normality and this looks set to be determined by the vaccination rollout. The survey found 61% of global executives will be looking to make a return to office-based working when more than half of the adult population is vaccinated. The survey also found that the effectiveness of the vaccine rollout thus far seems to have countered the push from CEOs to reduce their office space, with only 17% of executives now looking to downsize. Could this be the start of renewed meetings, in person, between companies and investors? Investment banks are leading the return to work according to City AM. Goldman, JPM and CS (which collectively act as broker to 225 companies) are among the businesses whose workers will return to the office today.
Former BlackRock executive blows the whistle on greenwashing
Bloomberg has come out in defence of controversial comments by Tariq Fancy, former CIO for Sustainable Investing at BlackRock. The risk of asset managers disingenuously promoting their offerings as being ESG compliant is already alarmingly high and, according to the Gladfly column, only likely to increase following the implementation of new EU rules designed to delineate the industry’s performance. The likelihood of more greenwashing seems almost inevitable with ESG funds pulling in nearly €100 billion of new money in the fourth quarter. The new rulebook has created three classifications of European funds: Article 9 (“dark green”) comprises the most intensive category of ESG products, Article 8 (“light green”) covers funds that have some “environmental or social characteristics”, while Article 6 covers funds that ignore any standard ESG characteristics at all. The current investing climate offers no incentive to pitch an Article 6 fund to a customer and so many worry that this new system simply encourages market participants to simply classify all funds under Article 8.
Companies offer investors a glimpse at employee turnover
US companies are being encouraged to share more details about employee turnover as part of new disclosure requirements. However, the Wall Street Journal has reported that for some investors the new measures aren’t enough because CFOs are still entitled to handpick the information they supply. Turnover rates, including voluntary exits as well as layoffs, often demonstrate to shareholders how well a company is being managed. Overall in 2020 US businesses cut 41 million jobs, compared to 22 million in the previous year. In August of last year the Securities and Exchange Commission approved changes that meant listed firms now have to provide investors with a description of ‘human capital resources’. Even with the new rules, executives are given broad discretion over what data points to address, meaning finance chiefs still ultimately decide what they say and, most importantly, what they do not say. According to data from MyLogIQ, approximately 1,094 companies in the S&P 1500 discussed human capital in their year-end fillings up to 16 March 2021, while only 16% or 174 firms explicitly disclosed their turnover rate.
Questions raised by return of share buyback craze
Both Bloomberg and Shares have commented on the return of the share buyback craze. Recent market conditions have been causing nervousness but it’s not deterring corporations. Shares argues that investors should be asking why firms are not reinvesting their capital to generate higher returns. However, as Bloomberg’s chief equity strategist puts it plainly; “when you see cash flow accelerate, you see buybacks follow shortly thereafter”. Apple has been leading the way, buying $24.8 bn of shares back in the last quarter. However, buybacks globally are thought unlikely to reach pre-pandemic levels. Companies that saw success over the past year are seeing buybacks as a way to express their confidence in their business, as highlighted by Direct Line’s comments following its £100 million repurchase.
The little-known fund that helped topple Danone’s CEO
Last week it was announced that Emmanuel Faber was stepping down from his role as CEO and Chairman of Danone following pressure from activist investors. However, not much has been reported about Bluebell Capital who became the public face of the campaign that led to this outcome. The FT has shed light on the London based hedge fund, which started as an advisory firm in 2014. The fund has typically teamed up with bigger market players to have its voice heard in activist situations, demonstrated in its first campaign against Monte dei Paschi di Siena, where it teamed up with York Capital and Alken. When questioned on the situation, co-founder Marco Taricco said that there is never anything personal in the causes Bluebell pursues, and in the case of Danone their actions were motivated by poor governance and financial performance. Bluebell is not alone in its campaigning. Across Europe as a whole, activism has rebounded after the Covid pause.
And finally … Fake insider trading is illegal too
Everyone has heard of insider trading, but Bloomberg has reported on a newer type of securities fraud which they have dubbed “fake insider trading”. In 2016 and 2017, the Department of Justice pressed charges against a SpaceX engineer for misleading dark web users and providing them with market information that he claimed was insider knowledge, when it was in fact based on research and market speculation. He shared this “inside” information in return for a share of the profits; such fake inside tips were deemed fraudulent as they were material and individuals acted on them. Company leaks are not the only source of insider trading evidently.
30 March: Is ESG Spending Sustainable For Europe’s Asset Managers in a Post-MiFID II World? – Bloomberg Intelligence
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